Bellerbys Economics - Mr Stephenson

Monday, October 29, 2007

About Economics is a Canadian website (I think) which has struggled for sometime to find its right place in the Internet community. For a long time, it acted as a kind of mirror-site to Wikipedia, but more recently it has adopted a metalink approach with carefully chosen moderators creating some very useful areas for themselves from the main body of the site.

One of the best of these is Mike Moffatt's Economics area. His front page acts as a link to two economics textbooks - which in fact lead you to dozens of related articles - all at the appropriate standard for our A-level and Foundation students:

Remember how we've said it's very important for you as an A-level student to get involved in the subject - you won't get an A-grade if you just take notes in class. You don't study Economics, you become an Economist.

Mike's blog is also worth looking at:

Friday, October 26, 2007

Russian Bear Rising

With economic growth of 7% a year, the Russian economy should double in the next 10 years probably moving Russia from ninth to fifth position in terms of PPP. The economic growth is being created by both demand and supply factors.

Certainly, in terms of supply, major investment in oil and gas pipelines and the development of new gasfields to the north - in conjunction with Norway's Statoil - and in Siberia with the major Sakhalin-2 project, the country is experiencing a major investment boom.

On the demand side, revenues from oil and gas supplies, because of massive increases in price, are creating inflationary pressure within the economy as the money cannot be spent intelligently fast enough!! The government has tried to slow down the increase in the money supply by creating a development fund for the country - aimed at investing in medium-sized businesses - but at the moment there aren't enough of them to take advantage. Inflation is now 10% and continues to be a problem for the government. In response, they have imposed a price freeze on many food projects - but all Economics students know what the outcome of that will be.

The relationship with the EU is also a difficult one. The EU needs Russia's gas in particular but is reluctant to allow Gazprom to invest in the EU energy industry when EU energy businesses are not given free access to Russia in return. There is a summit this week between the EU and Russia which may go some way to relieving this problem. One piece of positive news is that Russia has now agreed to accept WTO rules regarding tariffs and access and that does bring it closer to joining that organisation which may make it a more reliable trading partner in the future.

Thursday, October 25, 2007

China Moves into Third Place

By some estimates, China will move into third place in terms of world GDP by the end of November when it overtakes Germany. It's already in second place in terms of PPP. Economic growth in China is 11.5% - higher than the Government's target of 10%. Economic growth of 11.5% means the economy is doubling in size about once every six years - in other words, if it continues at the current rate, the average Chinese person will be four times richer just twelve years from now.

But not everything is rosy in China at the moment - inflation of 6.2% is a big problem, brought about by a fall in supply of pigs through blue tongue disease and increased consumption, initially prompted by the Government itself when it promoted a 'two legs, not one' policy this time last year in an effort to move away from over-dependence on exports. But the fall in the value of the yuan - with its continuing link to the dollar - has in fact made exports even cheaper, fuelling surging demand in that area too.

A combination of growing interest rates, increased pork production and a rise in the exchange rate should see the overheating and inflation ease off in the next year. Certainly, the Chinese economists steering the economic miracle, such as Li Xiaochao, seem to have the problems firmly in their sights. The supply-side is likely to continue to be the engine for China's growth with China still being the best place to invest for manufacturing economies. For the first time ever, China contributed more to world economic growth last year than the United States - and it will be the same this year.

GDP - end of 2006 - $tr

1 United States 13,201,819
2 Japan 4,340,133
3 Germany 2,906,681
4 China 2,668,071
5 United Kingdom 2,345,015
6 France 2,230,721
7 Italy 1,844,749
8 Canada 1,251,463
9 Spain 1,223,988
10 Brazil 1,067,962

PPP - End of 2006 $tr

1 United States 13,060,000
2 People's Republic of China 10,210,000
3 Japan 4,218,000
4 India 4,164,000
5 Germany 2,632,000
6 United Kingdom 1,928,000
7 France 1,902,000
8 Italy 1,756,000
9 Russia 1,746,000
10 Brazil 1,655,000

Wednesday, October 24, 2007

Make Money From Chocolate

That's what 15-year-old Louis Barnett is doing. He started at 11-years-old making chocolate for his friends from a single toggle press - one bar of chocolate at a time. Now, he's starting his own factory and supplying Tescos and Sainsburys. He even employs his own parents. Read the BBC news article here:

If you want to try it yourself, you can get the equipment here:

Keep up to date with all the latest chocolate news here:

If you have wondered why girls love chocolate so much - this article might help:

Finally, don't forget the Bellerbys Business Club (BBC) - your Business Studies will be pleased to help you work through the problems in starting your own business or enterprise. Remember, there are four basic ways of running a business:

Provide a service
Organise an event

When you have an idea of what you'd like to do, come and talk to us about it.

Tuesday, October 23, 2007

Tesco & Disney

The news that Tesco will soon launch a whole new range of 'healthy' foods carrying Disney cartoon characters - including fresh fruit, yoghurts and breakfast cereal - is an example of co-branding. It increases the inelasticity of the products as children use their 'pester power' to force their parents into buying the correctly branded product.

Examples of co-branding have always existed of course - breakfast cereals, for example, often carry marketing material for children's TV series and the like. However, the difference here is the scale of the agreement. Not only are whole new areas of produce going to be rebranded and repackaged - but this deal also gives Tesco the opportunity to extend its placement in Disney enterprises worldwide - only a matter of time before Donald Duck Tesco yoghurts are on sale in Disney World Florida.

It's also a neat way to remove the stigma that is often associated with own-brand supermarket products. The glamour od Disney begins to attach itself to the Tesco brand name, again increasing value-added appeal.

Other current examples of co-branding include Nike's link with iPod; the ubiquitous Prada mobile phone which is in fact produced by LG Electronics in South Korea; and the NBA Youtube channel, which is technically a microsite within Youtube - but which heralds the dawn of the chaos of Youtube perhaps beginning to be organised into sellable channels for quick downloads to video iPods.

Tuesday, October 16, 2007

Nobel Prize for Economics

Of course, we all know that there isn't really a Nobel prize for Economics - but there is an equivalent organised by the Swedish central bank which carries equal status to the original prizes.

This year's winners are: US economists Leonid Hurwicz, Eric Maskin and Roger Myerson.

They've won the prize for their work on economic mechanisms. These are markets, usually infrastructure, monopoly or oligopoly markets which are complex in nature and where it is difficult - often because of the capital investment required - for a market to function normally. Examples might include the railways, the energy market, the NHS, education, water and so on.

In many societies, these would traditionally be run by government, but increasingly governments have believed that social welfare can be maximised by introducing market elements into their operation.

The difficulty is identifying how these macro-markets work on a micro-scale and what level and type of regulation increases social welfare. This is where our three economists come in, applying mathematical models from game theory to the types of markets above which essentially concern competing interest groups at different levels of the organisation.

Friday, October 12, 2007

Thanks Ross!

From Ross Wainwright, our colleague in Australia, comes this extremely useful link from Monash University, providing an online tutorial to writing good essays in Economics:

There are many more online economics tutorials - such as this one from South Carolina:

MIT has put all its lecture notes online - you may find some a bit hard, but at least it'll show you where the subject is going:

Thursday, October 11, 2007

Top of the Class

Who is China's richest person?

According to Forbes magazine, it is 26-year-old Yang Huiyan from Hong Kong whose father owns Country Garden Holdings. Huiyan has been working for her father as a property developer in the booming Shanghai property market. It's unclear yet whether the recent credit restrictions in Shanghai will damage her position this year. Meanwhile, however, she is worth a staggering $17 billion (yes, that's billion not million - nine zeros everyone), giving her a DAILY income of $3 million.

Her father, now 53 and taking a backseat in the company, started life as a bricklayer in Guangdong province.

In second place is last years's winner, Zhang Yin, another woman, and the owner of the Nine Dragons Paper company. She is worth $10 billion.

In third place is Xu Rongmao of the Shimao Group which builds luxury estates - in fact, he's a billionnaire who builds homes for millionnaires!

Notice how investing in property is a pretty safe way to get rich - or at least as safe as it can be. Firstly, you save money by not paying rent; then as the property value rises, you can borrow more money to invest in more property. Also, you can use your property value as surety against a bank loan which will allow you to invest in even more property - or a business. Finally, there's the very lucrative re-insurance business where you use the value of your property as a guarantee against insurance deals - it's unlikely it will be ever required but you get paid a dividend for providing the service.

Tuesday, October 09, 2007

Development Economics

As we start to move towards the end of Module 6 - International Trade and Development Economics - news arrives of the planned creation next month of a South American Development Bank. Created by the members of Mercosur - Venezuela, Brazil, Argentina, Bolivia, Uruguay, Paraguay and Ecuador - this will be a direct rival of the World Bank.

The World Bank and the IMF were the two economic structures created at the Bretton Woods conference in 1944 as the western world sought to create a new stable world economic order. However, both have been criticised in the last 20 years for following too closely the 'Washington Consensus' and pushing developing countries into adopting free market policies which may not be appropriate to their particular stage of development.

Countries that have been most successful in lifting people out of poverty, such as China and Vietnam, have on the contrary followed quite centralised development policies focussed on health, education, export-orientation and infrastructure development - before opening up to a more free market approach.

The South American Development Bank - and the recently launched Federal Development Bank in Russia - seeks to follow the planned development of Asian countries (sometimes called the Beijing Consensus). Time will tell how successful they will be, but the launch of the bank does indicate a further decline in the influence of the World Bank, still struggling to emerge from recent corruption scandals and struggling to reassert its moral authority in the developing world.

There is conflict, however, between Brazil and Venezuela. They have different cultural traditions and both are fiercely proud of their position - seeing themselves as the leader in South American politics. Brazil is closer to Washington and recently signed an important deal to export ethanol to the US.

One interesting aspect of the new Bank is the idea to create 'stateless' money - in effect, a new currency that does not belong to any one country but can be trusted and used throughout the continent. This money would be issued as credits for development projects and could be drawn on and transferred through the banking system - a virtual economy of its own. The IMF uses a similar system of credits but IMF credits are always backed by US dollars. The BancoSur idea takes this one stage further - it's just an idea at the moment, it will be interesting to see how it develops and how it interacts with existing currencies.

Wednesday, October 03, 2007

Minimum Wage

Many students have been asking me recently about where they can get a job. In most cases, your visa allows you to work part-time during term time and full-time during the holidays.

The easiest way in the UK to get a job is simply to walk into an establishment and ask for one - sometimes you will see a notice on the window of a shop or cafe, saying something like 'Staff Required' or 'Part-Time Vacancies'. The favourites for most students are Asian restaurants, McDonalds/Burger King and big shops such as Primark.

If you work in a small business, remember that they must pay you Minimum Wage. We helped one student last year claim back money he was owed from a Chinese restaurant. We did this with the help of the local Trading Standards Officer. If you have tax taken from your wages, you can probably claim it back again at the end of the year from the local tax office (Brighton 2) using the P5 form.

Here are the new Mimimum Wage Rates:

The adult rate for the statutory minimum wage will go up from £5.35 to £5.52 and from £4.44 to £4.60 for 18 to 21-year-olds. The rate for 16 and 17-year-olds will increase from £3.30 to £3.40 an hour. The annual holiday will rise from 20 to 24 days a year, for people who work five days a week, and will rise again to 28 days from April 2009.

If you work in a restaurant, it's important to remember that under UK law, the owner cannot include any tips that you get as part of your pay - this is a gift from the customer to you and it has nothing to do with the business.

Remember the holiday rate - because if you only work for a business for a short period - let's say three months - and you haven't had any holiday, then they must pay you for the holiday that they owe you - for three months, that would be six days extra pay.

Tuesday, October 02, 2007

Born To Shop

This is the 100th entry on this blog - and what better way to celebrate it than with a game.

It's an Economics game called the Ultimatum Game - it's a part of Game Theory (Module 5). This is how it works. One player is given £100. He is told that he must share some of that money with a second player. However, if the second player rejects the deal, no one gets anything.

Now logic tells us that if player 1 offers player 2 even as little as £5, he should accept it - because after all, he's getting something for nothing.

However, people are not rational agents (goodbye, most of economic theory). Actual research shows that if player 2 feels that the deal is unfair, he will usually reject the deal as a way of punishing player 1 for treating him badly. This has confused Economics professors for some time.

Enter MIT researcher Dave Cesarini who has been working with twins in Sweden. He first of all discovered that identical twins responded more often in the same way to the same offer in the game than fraternal (non-identical) twins. This led him to suspect that genetics had something to do with the way we make economic choices.

His research has expanded with the help of other Swedish researchers to the point where it now appears clear that genetics does have a larger influence than logic on the way we bargain, choose and trade in Economics.

So, you see, it's not your fault if you spend all your parents' money in H&M, Zara and Top Shop - you were simply born to shop.